Proposed acquisition by Arla Foods amba of Express Dairies plc

No. Arla

A report under section 125(4) Fair Trading Act 1973 on the advice given on 3 July 2003 to the Secretary of State for Trade and Industry under section 76 of the Act

Please note that the full text of the decision can be downloaded by using the link on the right. What follows are extracts from the advice regarding the parties and the conclusion.

THE PARTIES

Arla Foods amba (Arla) is a Danish milk co-operative with production facilities mainly in Denmark, Sweden and the UK. Arla's turnover for the year ending 31 September 2002 was Euro 5,308m. Its UK turnover for this period was Euro 957m. It (Arla worldwide - see note 1) made a profit of Euro 156m in the financial year 2001/2002.

Express Dairies plc (Express) is primarily active in the processing and supply of milk and cream products in the UK. Express made a profit of £267.7m ( this is gross profit, i.e. only cost of sales has been deducted, and Express' operating profit before exceptional items was £32.0 million - see note 1) on a turnover of £885.9m in the year ended 31 March 2002. Its gross assets as at 31 March 2002 were valued at £347m.

CONCLUSION

The merger will lead to a reduction in the number of potential suppliers of fresh milk to the larger supermarkets - from four to three nationally and potentially from three to two in some regions. While some supermarket groups were unconcerned, others raised serious concerns about the potential adverse effects arising from the loss of Express as an independent bidder. While there are sound arguments that the combination of supplier expansion and the exercise of buyer power might exert a competitive constraint on post-merger competitive behaviour, the balance of the available evidence leads us to conclude that the merger gives rise to a significant prospect that it may lead to a substantial lessening of competition and that it should, therefore, be investigated further by the CC. Concerns in relation to the supply of schools do not appear sufficiently well-founded to warrant reference by themselves, but may be worthy of further consideration as part of a wider merger investigation.

Therefore, we conclude and recommend that you should refer this merger to the CC.

NOTES

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